Fed’s Fisher: May Need to Consider Curtailing QE2

By

Michael S. Derby

Apr 8, 2011 11:35 am ET

A key Federal Reserve official continued Friday his drumbeat of criticism against the central bank’s policy of buying Treasury debt to drive forward economic growth, as he also took the nation’s political leaders to task, imploring them to get the budget under control.

“Continued accommodation presents significant risks,” Federal Reserve Bank of Dallas President Richard Fisher said. “No amount of further accommodation by the Fed would be wise — either by prolonging or ‘tapering off’ the volume of purchases of Treasuries past June, or adding another tranche of large-scale asset purchases.”

Fisher continued his rebuke of the $600 billion program that is set to end in the summer by saying “it may well be that we should consider curtailing what remains” of the program commonly referred to as QE2.

The Dallas Fed president is a voting member of the interest rate setting Federal Open Market Committee, and he has for a number of months been a steady critic of efforts by the Fed to stimulate growth by buying longer-dated government bonds. Fisher believes the economy simply doesn’t need the support right now, and fears the extra liquidity the central bank is providing may be setting off a new round of financial market imbalances as well as creating a future inflation surge.

Much of what Fisher said in his speech Friday — his comments came from the text of remarks prepared for delivery before a conference of the Society of American Business Editors and Writers — wasn’t new, although until Friday the central banker had refrained from suggesting QE2 be stopped short. Fisher isn’t alone in his discomfort with the program but he remains in a minority, as officials like Fed Chairman Ben Bernanke and New York Fed President William Dudley remain steadfast supporters of the effort.

QE2 advocates believe rising price pressures are tied to transitory commodities gains that are themselves driven by forces outside the Fed’s influence. What’s more, they see high unemployment keeping a lid on wages, the main driver of upward price pressures. Most economists expect the Fed to complete the QE2 effort as planned.

In his remarks, Fisher reiterated that he sees evidence the Fed’s activities may be causing trouble. “My gut tells me” firms may soon start passing through rising input prices, and “this will result in some unpleasant general price inflation numbers in the next few reporting periods.”